109-351 amended the FCU Act to set a 15-year maximum maturity on credit union loans, with some exceptions.. 115-174 ) amended the statutory MBL definition (i.e., it removed the words ''that is the primary residence of a member'') to address a disparity in the treatment of certain residential real estate loans made by credit unions and banks.. 1216) to create a class of federally chartered financial institutions for "promoting thrift among its members and creating a source of credit for provident or productive purposes.". 1661 , if enacted, would amend Section 107(5) of the FCU Act to allow NCUA the flexibility to extend maturities for all loans, including MBLs and student loans.. Business lending restrictions include an aggregate limit on an individual credit union's member business loan balances and on the amount that can be loaned to one member.. By amending the FCU Act several times to expand permissible lending activities, Congress arguably had recognized that the credit union system has evolved into a more sophisticated financial intermediation system.. Community banks, which often compete with credit unions, argue that policies such as raising the business lending cap, for example, would allow credit unions to expand beyond their congressionally mandated mission and could pose a threat to financial stability.. Conclusion

Credit union industry advocates argue that lifting lending restrictions to make the system more comparable with the banking system would increase borrowers' available pools of credit.. Congress has also emphasized prudential safety and soundness concerns.. Congress has since increased system-originated loan maturity lengths.. Congress passed the Federal Credit Union Act of 1934 (FCU Act; 48 Stat.. Credit unions can make loans only to their members, other credit unions, and credit union organizations.. Following the 2008 financial crisis, the federal bank prudential regulators implemented prudential requirements to enhance the U.S. banking system's resiliency to systemic risk events.. For example, residential one-to-four family mortgages may exceed the 15-year maturity term as long as the property is the borrower's primary residence.. Hence, the credit union interest rate ceiling is currently below the federal MLA cap on consumer loans offered to military personnel.. In the 116 th Congress, H.R.. In the meantime, the NCUA has implemented and proposed rules to support expanding lending activities that would increase financial transactions volumes (economies of scale), thus possibly generating greater cash flows and profitability for the credit union system.. Individual credit unions are owned by their memberships.. Limitation on member business loans .. Over time, Congress expanded credit unions' permissible activities because the original concept of a credit union arguably needed to evolve with the marketplace.. The CUMAA established the MBL cap and a capital-based supervisory framework as tools to enhance prudential safety and soundness, ultimately providing more protection for the share deposit insurance fund.. The NCUA initially proposed in 2014 to increase capital requirements particularly for large credit unions (those with $500 million or more in assets); however, the proposal has been revised, delayed, and is currently scheduled to become effective in January 2022.. The National Credit Union Administration (NCUA), an independent federal agency, is the primary federal regulator and share deposit insurer for credit unions.. The adoption of enhanced prudential net worth requirements for the credit union system, however, arguably may facilitate mitigating the financial risks that typically accompany increases in lending.. The lending and investment powers of the credit union industry, however, are still more restrictive than those of commercial banks.. The original concept of a credit union stemmed from cooperatives formed to promote thrift among its members and to provide them with a low-cost source of credit.
Credit unions make loans to their members, other credit unions, and corporate credit unions that provide financial services to individual credit unions. Historically, credit unions have faced statutory restrictions on their lending activities, including restricting lending activities to their members. Other lending restrictions include a 15% statutory loan interest rate ceiling, with some authority to operate above the cap under certain circumstances; a 15-year maturity limit on most loans (with some exceptions, such as residential mortgages); and an aggregate limit on an individual credit union's member business loan (MBL) activity (in the form of outstanding loan balances) and on the amount that can be loaned to any one member.
Congress passed the Federal Credit Union Act of 1934 (FCU Act; 48 Stat. 1216) to create a class of federally chartered financial institutions to "promote thrift among its members and create a source of credit for provident or productive purposes." The original concept of a credit union stemmed from small lending cooperatives that not only provided a low-cost source of credit for but also promoted thriftiness among their members. Since their inception, credit unions have been granted additional lending authorities as the marketplace has evolved. Nevertheless, the credit union system still faces more restrictions than the commercial banking system.
Credit union industry advocates argue that lifting lending restrictions to make the system more comparable with the banking system would increase borrowers' available pools of credit. Community banks, which often compete with credit unions, argue that policies such as raising the business lending cap, for example, would allow credit unions to expand beyond their congressionally mandated mission and could pose a threat to financial stability. By amending the FCU Act several times to expand permissible lending activities, Congress arguably recognizes that the credit union system has evolved into a more sophisticated financial intermediation system. In addition to various FCU Act amendments over the past several decades, Congress has recently passed various legislation that would allow credit unions to expand their lending activities. For example, P.L. 115-174 revised the MBL definition, allowing credit unions to extend loans to one-to-four family dwellings regardless of whether the dwellings are primary residences. In the 116 th Congress, H.R. 1661 has been introduced and, if enacted, would amend the FCU Act to allow the National Credit Union Administration (NCUA)âthe primary regulator of federally insured credit unionsâthe flexibility to extend loan maturities for all loans, including MBLs and student loans.
Recognizing credit unions' primary mission as meeting consumers' credit and savings needs, Congress emphasized prudential safety and soundness concerns when it established the statutory cap on MBLs and a capital supervisory framework for the credit union system. Following the 2008 financial crisis, the federal bank prudential regulators (i.e., the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation) enhanced their prudential capital requirements to increase the U.S. banking system's resilience to systemic risk events. Likewise, the NCUA initially proposed in 2014 to increase capital (net worth) requirements particularly for large credit unions (those with $500 million or more in assets); however, the proposal has been revised and delayed and is currently scheduled to become effective in January 2022. In the meantime, the NCUA has implemented and proposed rules to support expanding lending activities that would increase financial transactions volumes (economies of scale), thus increasing the array of loan product offerings for members and potential revenues for the credit union system. Likewise, Congress has been monitoring the extent to which the adoption of enhanced prudential capital requirements for the credit union system has kept pace with the bank prudential regulatory regime.